Shale Gas Deflates Renewables: Fooled Again

"There is no question that depressed natural gas prices have had an adverse effect on the wind and solar industries," said Kenneth Kimmell, the president of the Union of Concerned Scientists and the former commissioner of environmental protection in Massachusetts. "It’s stunting zero-carbon alternatives." from "The Potential Downside of Natural Gas," Matthew Wald, NYT 6/4/14.

Matthew Wald notes in today’s New York Times that the shale gas revolution has some negative aspects, including the way the renewable sector (and nuclear) have been hurt by low natural gas prices. However, Kimmell makes a typical mistake of thinking prices are low just because they are below the peak. (This error has been made by many in the oil business as well, especially after prices declined from the one-day peak of $145) In truth, the natural gas price is roughly where it has been, on average, adjusted for inflation, since deregulation of prices in 1986.

No matter where markets are, someone will be bearish and someone will be bullish, and media will often pair off the two, making it appear as if their views are equally valid but also as if the weight of opinion is roughly equal on the two sides. Thus, there are always those who correctly predicted a market shift, because there are so many prognosticators that you can’t swing a dead cat without hitting one of them (two, if you’re good).

Real estate booms are usually a warning sign for a nation’s economy, in my opinion, because you consume housing, it is not a productive sector. When investment in Thailand shifted from auto manufacturing to real estate in the late 1990s, it should have made investors more cautious.

My personal favorite is to watch the luxury sector: when bars start to serve things like oxygen shots from pristine environments like the Himilayas or water from Antarctic glaciers, the implication is that there’s too much money floating around. Certainly, that was the case in the early days of the shale gas boom, with Chesapeake overpaying for leases and running up an extraordinary debt load, to its subsequent regret.

At an alternative energy conference in Bahrain in 1999, I encouraged optimism but warned against undue optimism, and especially the idea that "...external developments will guarantee them a market." Arguments about ever-rising oil and gas prices due to scarcity were fallacious, I noted, and renewables were poorly suited to provide energy security. (The article, "Oil scarcity, oil crises, and alternative energies: don’t get fooled again," appeared in Applied Energy.)

Unfortunately, Cleantech advocates still believe that they can rely on high fossil fuel prices to make them competitive and don’t think that the industry is in a bubble, despite growing resistance to the cost of renewables–which are often hidden by mandates and subsidies. I’ll repeat what I said in 1999: "Efforts should be focused on the research and development needed to improve the economic competitiveness of these fuels so that they will be embraced by consumers for their own sake."